“Logistical considerations have always played a strategic role in business. Among retailers and wholesalers, they transcend inventory management and transportation to include one of the most critical factors in business success—location in relation to markets or sources of supply.” James L. Heskett, Harvard Business Review, 1977
The term “logistics” is used widely in the transportation and manufacturing industries to refer to the flow of supplies, materials, equipment, food, and other tangible goods between their points of production and consumption.
Originally a military term coined when only national military efforts were large enough to require complicated in-depth planning, the growth of markets to span countries, continents, and then the world have made companies specialized in different areas of the logistics necessary to acquire, store and transport goods efficiently the underpinning of the global economy. This function has been pithily summed up by The Council of Supply Chain Management Professionals as “the management of inventory, at rest or in motion.”
Logistics management in the modern world requires competent use of technology to coordinate and track inventory, identifying effective routes and selecting trustworthy carriers, and choosing the best methods of delivery and packaging. Businesses that struggle with logistics will have difficulty thriving even if they possess advantages in other areas, such as manufacturing or customer service.
Often it is fluctuations in production or shipping due to growth and expansion that highlight the need businesses have for experienced partners in the logistics field who can deal with the intricacies of the supply chain. By working with a high-quality logistics company, a business is freed up to focus on its core competencies.
The evolution of the global economy and its complicated supply chains has led to a proliferation in the types of logistics companies offering services, and these require slightly more explanation than is available in the Department of Transportation’s Freight Glossary. Below is a brief summary of principal categories of logistics companies to help clarify what can be a complicated topic.
Types of Logistics Companies
Logistics companies plan, manage or carry out the transport and storage of goods within the supply chain from start to end. While courier services or common carriers like USPS that handle parcels are sometimes included in the category of logistics, more often the term is used for items that are larger than ten feet in length or heavier than 150 pounds and based on contracts between businesses rather than set rates open to individuals.
Transportation by truck, train, plane, or cargo ship is not the only factor, as the detailed monitoring, handling, and tracking of inventory through a network of warehouses and across borders are key concerns. The areas of operation handled by logistics companies can be broken down into four key functions:
- Warehousing and Materials Management
Warehousing has become increasingly complex as supply chains have become global and the e-commerce driven demand for fast delivery has required storing and managing inventories close to bases of end-point consumption. A number of logistics companies have stepped in to solve the problem of finding appropriate and affordable storage space in the right locations. Some logistics companies take this a step further, owning a network of warehouses that can be as large as half a mile long, and further specializing in the efficient operation and processing of inventory in and out.
- Order Processing
Some logistics providers have developed an array of services to fully replace the work that might be done by a business’s commercial department – taking orders, processing payment, and properly packaging and dispatching goods from warehouses to customers, as well as coordinating returns.
- Technology and Inventory Control
One of the benefits of partnering with a logistics company is that the focus and scale of their work justify investments in the technology necessary to drive greater reliability and efficiency than a business would be able to achieve on its own. Long-range RFID tracking, AI-enabled load scheduling, tracking software, and Internet-of-Things devices can not only help manage and move inventory and communicate in real-time with customers about delivery but provide the fast feedback necessary for just-in-time manufacturing.
- Shipping and Transportation
Moving freight is what most readily comes to mind when the public thinks about logistics and the supply chain. It takes an enormous investment to acquire, fuel, and maintain a fleet of trucks, planes or ships, not to mention employing, managing, and licensing the highly trained workforce that operates them. Businesses have long relied on specialized varieties of carriers to handle the expensive task of moving freight rather than attempting it in-house because economies of scale play a major role in making transport cost-effective.
While the way in which different logistics companies mix and match these core functions in their array of services is very diverse, in general, most companies fall mostly into one of four categories: carriers, freight brokers, freight forwarders, and third-party logistics providers (3PLs).
Carriers are logistics companies that specialize in moving freight from point A to point B, and they are usually divided by their method of transport and size. Ocean, air, and rail all play a part, most often combined with trucking to form intermodal or multimodal supply chains.
Freight trucking is principally divided into Full Truckload, Less-Than-Truckload, and Partial-Truckload services. Full Truckload is the simplest, picking up a full semi-trailer of cargo from a large producer at their loading dock and transporting the goods owned by that one business straight to its destination. Because the truck does not stop for further loading or unloading and is dedicated to one customer, the main advantage of Full Truckload shipping is that the cargo moves quickly and directly to its destination with minimal risk of damage.
Despite its advantages, Full Truckload shipping is not economical for companies that need to move smaller amounts of freight or have it picked up and delivered at locations that do not possess loading docks suitable for large trucks. Less-Than-Truckload (LTL) shipping works by aggregating the smaller freight loads of multiple companies into full loads and moving those loads through a hub and spoke network of warehouses until each reaches its destination.
While the travel time is potentially increased, and a greater risk of damage is incurred by loading and unloading at multiple points in the network, LTL shipping makes the movement of freight possible at economical rates for clients who want to ship and deliver smaller loads of freight or make deliveries in locations without loading docks such as offices and residential neighborhoods. LTL carriers also play a role in the larger supply chain by filling gaps in service in dense markets where and when FTL carriers are overwhelmed by surges in demand.
Partial Truckload (PTL) shippers are something of a hybrid between FTL and LTL, handling freight loads that are on the larger side, and not particularly time-sensitive or vulnerable to damage. Essentially they operate by filling a truck with partial loads and then sequentially emptying it through deliveries, interfacing less with multiple warehouses.
One factor to consider when comparing different carrier companies is their geographic scope. National companies that operate coast to coast and border to border are mainly large, sophisticated, and publicly traded. Their main advantage is their comprehensive coverage, which can be especially important to simplify service in the LTL space.
Multi-regional and regional carriers are less comprehensive, but can often outcompete national companies in certain areas at different services and rates. With a more focused network, these carriers will often be the best option for companies that need to move freight within their regional scope of operations.
Local Carriers will often provide competitive service and rates within one state or part of a region, but specialize in some aspect of the freight market in order to fill a niche role such as providing a high-quality delivery experience. Businesses are often better able to secure preferential pricing in exchange for volume, as well as more customized attention and services by employing a local carrier.
While a few of the largest national freight companies build on their comprehensiveness by offering extremely simplified rate structures for moving cargo, most freight carriers determine rates by factoring distance, establishing the freight’s dimensional weight (a cost equation that relates weight and how much space the dimensions of the freight take up in a truck) and through its freight classification.
Freight classification is a schedule of freight codes standardized by the National Motor Freight Classification Association based on the type of freight, how it is packed, and how sensitively it needs to be handled. Fuel costs and accessorial charges for any specialized services, or penalties for incorrect freight classification, can also influence rates.
Freight brokers are logistics companies that compete with national carriers by creating networks of hundreds of local and regional carriers. While they themselves have no warehouses or transportation fleets, they solve an important information problem by bidding on cost and service-defined contracts for the movement of individual loads of freight and then arranging their movement through an appropriate chain of in-network small operators.
For shippers, they offer more options and flexibility than they are often able to get from national carriers, while for small carriers they serve as an important source of business.
It’s not infrequent for a company that needs to establish shipping relationships to move their cargo to not have the knowledge and experience, or the bandwidth, necessary to deal with carriers. This is especially true for the more complicated task of moving freight across borders.
Freight Forwarders are companies that specialize in facilitating the arrangements necessary for cross-border traffic. While they don’t directly move the freight, they manage the contract negotiations with air, sea, rail, or truck carriers, the documentation, customs clearance, and duties. Freight Forwarders partner with networks of logistics companies both domestically and internationally in order to find the best routes, services, and prices for their customers.
The terms Freight Broker and Freight Forwarder are sometimes used interchangeably, and they are similar in that they are both companies that facilitate the movement of freight through a network of carriers. However, Freight Forwarders not only manage cross-border processes, but also take on greater responsibility by storing freight in warehouses, insuring it, and shipping it under their own bill of lading.
Third-Party Logistics Providers (3PLs)
3PLs provide a suite of services, partnering long-term with companies, deeply integrating with them to manage part of all of the supply chains for their goods. Accordingly, 3PLs invest in their own warehouses, distribution centers, and fleets; and fulfill not only storage and carrier functions but also the processing and packaging of orders and coordination of returns.
The exponential growth of e-commerce has been a driving factor in the growth of 3PLs. Most Fortune 500 companies now work with a 3PL partner in one way or another, and 3PLs are constantly customizing their services as the needs of their partners change and grow.
Where they have not invested in sufficient infrastructure, 3PLs can leverage economies of scale by purchasing shipment or warehouse space in bulk from carriers and storage facilities and then selling it to their clients. Integrating multiple links in the supply chain under one roof allows smaller businesses to access prices and opportunities that would otherwise be out of reach.
While much of the work of Freight Brokers and 3PLs can overlap, placing them in competition, they can also complement each other – 3PLs providing a share of certainty through an established long-term relationship while Freight Brokers offer the flexibility to meet surge demand or specialty needs.
Considerations when partnering with a Logistics Company
Key considerations when considering which and what type of logistics company to partner with are price, reliability, flexibility, expertise, and reputation. Expressit Logistics is a California statewide LTL company that specializes in White-Glove delivery.
Our service array is optimized to deliver a high-quality, professional experience that reflects will on the brands we partner with, working flexibly and with urgency outside the set hours of other carriers. Whether moving oddly shaped cargo, delivering to a residence, a manhole, or a secured construction site, we deliver an engaged level of customizable service that exceeds expectations.